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As the Committee will know, these measures are about making the existing surveillance powers of Her Majesty’s Revenue and Customs available against all tax crime where it is serious and organised. There are comprehensive safeguards around the use of these powers, which can be used only for investigations into serious crime.

The noble Baroness asked a number of questions, as did the noble Lord, Lord Burnett. The first was: why do we need the changes and what benefit will they bring? The changes are needed to allow HMRC to effectively tackle serious criminal attacks on ex-Inland Revenue taxes and tax credits. They will allow HMRC to more effectively tackle these crimes and bring the individuals involved to justice. When

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HMRC was established in 2005, Parliament made it responsible for investigating crime connected with taxes and duties, including serious crime. To tackle those crimes effectively, specialist knowledge of the taxes and duties is required as well as the investigative skill. As I think the Committee will agree, HMRC has that specialist knowledge. There are more than 50 police forces in the United Kingdom and it would be extremely difficult to equip them all with the tax knowledge needed to deal with these crimes. It could lead to a loss of economies of scale and a dilution of experience and knowledge.

The proposal to make these surveillance powers available for investigations involving ex-Revenue matters was covered in the HMRC consultation document published in March 2006. Of the 58 responses to the consultation, 15 commented specifically on making the powers available for the investigation of serious tax crime related to Revenue matters; and 11 of those 15 respondents supported the proposals providing that they continued to be subject to the same safeguards and controls. I can confirm that the safeguards and controls will be unaltered and the powers will be used only for criminal investigations into serious tax crime. The powers have been reviewed to see whether they are appropriate to HMRC. That review has considered these powers and fully consulted, and most people agree that these changes make appropriate powers available. We therefore think that the framework is sound.

As the noble Baroness will remember, when HMRC was set up, the powers of the Inland Revenue and Customs and Excise were transferred but ring-fenced so that they could be used only for the purposes for which they were previously used. Customs and Excise had access to those powers for criminal investigations but the Inland Revenue did not, so the situation was preserved. When Parliament considered the Bill to establish HMRC, it was announced that the powers would be reviewed and, where necessary, that appropriate changes would then be made, rather than making changes in haste. Those powers, as I indicated, are the ones that have been reviewed, and I have tried to give the Committee a little information about the consequences.

I know that the noble Baroness, Lady Noakes, and the noble Lord, Lord Burnett, will understand the serious crime that takes place in attacking tax credits and the way in which we now have to address those issues. I was glad to receive affirmation that that is seen as something that should be addressed and is of serious intent. Serious crime involves other ex-Inland Revenue responsibilities as well as tax credits; for example, serious crime can involve dishonest advisers, a professional preparing false income tax repayment claims, or gangs dealing in forged tax certificates. The powers are needed to effectively tackle those serious crimes as well as where tax credits are involved. The law ensures that the powers can be used only where they are proportionate and necessary to tackle serious crime. Where those tests are met, the availability of the powers should not depend on whether a serious fraud involves VAT or income tax. For example, at the moment these powers could be available where

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appropriate to tackle a VAT fraud involving £10 million, but would not be available for a fraud involving £10 million of income tax even where the criminal behaviour was the same. I know that noble Lords will see the unfortunate consequence of that.

The extension of the powers was appropriate, and they have been dealt with sensitively. The noble Lord, Lord Crickhowell, says that there is nothing to restrict the use of these powers to investigate serious crime. Legislation such as the Regulation of Investigatory Powers Act 2000 restricts the use of the powers to criminal investigations into serious crime, so that provision exists. It is not something about which noble Lords need to be concerned. The noble Lord also asked about training and whether the powers could be used for civil matters. The training provided to HMRC staff investigating serious tax crime and the stringent safeguards and procedures that come with these powers will ensure that the powers are used appropriately. The procedures ensure that any possible use of one of these powers is subject to strict internal scrutiny before an application can even be made for its use. The powers are used only where other methods of investigation have failed or would clearly not succeed in obtaining the intelligence being sought.

I hope that I have been able to reassure the Committee about the structures, the way in which the powers will be extended, and the fact that we see it as important to mirror the safeguards that have been created to reflect the new structure and new ability to bring further criminal activity under proper control by these provisions.

Amendment No. 123 concerns the public scrutiny of the use of these powers by HMRC. Several stringent safeguards—some of which I have referred to—and systems of oversight are already in place for these surveillance powers. Clause 75 and Schedule 11 make no changes whatever to those. In particular, use of the powers is already subject to scrutiny by the independent Interception of Communications and Office of Surveillance Commissioners, and the scrutiny provided by those commissioners covers the use of the powers by a number of agencies including HMRC and includes the publication of annual reports. There is also an independent tribunal to consider complaints about the use of these powers. HMRC is also subject to inspection by Her Majesty’s Inspectorate of Constabulary and is within the remit of the Independent Police Complaints Commission. We therefore think that further arrangements for scrutinising the use of these powers are unnecessary.

Amendment No. 126 would remove paragraphs 5 to 31 of Schedule 11. These paragraphs update references to Her Majesty’s Customs and Excise and the Inland Revenue in the Regulation of Investigatory Powers Act 2000. This amendment would not prevent the clause fulfilling its intended purpose of making the relevant surveillance powers available where appropriate for all criminal investigations by HMRC into serious crime. However, it would make the legislation difficult to understand and interpret. Although the powers would apply consistently to

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HMRC, they would still refer to Customs and Excise and the Revenue as though differences remained, which could lead to mistakes and misunderstandings.

For these reasons I cannot accept that amendment either, but I absolutely understand that the noble Baroness tabled them to give us a vehicle through which we could debate these matters, as she said. She is not suggesting that they are accurate or appropriate but they enabled a proper debate to take place. For the reasons I have given, I hope that she will be content to withdraw these amendments.

Lord Burnett: I should like to say a few words on what the Minister of State has just said. I shall read carefully what she said about Amendment—

Baroness Scotland of Asthal: I apologise for interrupting but I realise that I did not respond to the noble Baroness, Lady Carnegy of Lour. I reassure her that I now have the Scottish position on every amendment. Therefore, she must feel free to ask about it, if in doubt. The measures that we are now discussing apply consistently across the United Kingdom and apply in Scotland in precisely the same way as in England, Wales and Northern Ireland.

Baroness Carnegy of Lour: My question was whether it was necessary to amend a Scottish police Act, because I believe that the Act which is amended here does not apply to Scotland.

Baroness Scotland of Asthal: I do not believe that it does. We scrutinised the Act very carefully to make sure that the provisions which referred to Scotland were included and that those areas where it was unnecessary to refer to Scotland were excluded. However, bearing in mind that I know that the eagle eye of the noble Baroness will scrutinise this further, we will certainly check it and I shall write to her so that she has the assurance that she needs.

Lord Burnett: I am glad that we have managed to put to rest the Scottish question. I shall be happy to read in Hansard what the Minister said on Amendment No. 123 and consider it before Report. I am grateful to the Minister for her full explanation on Amendment No. 126. It is good to get on the record the fact that these powers will be used only to combat serious tax crime. On that basis, I am happy to let the Conservative spokesman say a few words.

Baroness Noakes: The noble Lord is very gracious in letting me decide what to do with my own amendments.

I thank all noble Lords who spoke and the Minister for her comprehensive reply. There are really two issues here. First, should HMRC have the additional powers? I made the points that were put by the very significant professional bodies involved with tax compliance. I hear what the noble Baroness says about consultation. There is a feeling abroad that HMRC has been judge and jury on the consultation on its own powers. HMRC issued the consultation

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document, considered the responses and decided what to go ahead with in legislative terms with HM Treasury, with which, as we all know, it now cohabits in Parliament Street. There is a feeling outside that there has not been the opportunity to have the kind of independent review that was undertaken by the late Lord Keith, as I mentioned, which resulted in changes to the powers of Customs and Excise on VAT.

That issue will not go away, as the other powers will be brought forward in other pieces of legislation, but if we put it on one side we come to public scrutiny; I thank the Minister for setting out the areas of public scrutiny. I should like to think carefully about that and take advice on whether the mechanisms for public scrutiny meet the concerns that have been expressed. I reiterate the contextualisation of those concerns—that we are shifting a fundamentally civil-based tax administration to a system which has very significant police powers. In the old days it was never a problem for the Inland Revenue to work with police forces as necessary, lending its expertise in tax matters to police forces investigating fraud and criminal matters. That system worked in the past. If we are to change it, that is a significant issue which requires proper public scrutiny. That is why I need to consider carefully whether the existing mechanisms meet that need. I am grateful to the Minister for setting them out in detail. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.15 pm

Baroness Noakes moved Amendment No. 124:

The noble Baroness said: Some of what I shall cover in moving this amendment was touched on briefly by my noble friend Lord Crickhowell on the previous amendment. In the previous group of amendments, I probed the need for the relevant powers and the need for some oversight procedures. Amendment No. 124 is a further probing amendment, which concentrates on who in HMRC may exercise the powers.

Amendment No. 124 proposes that the Commissioners of Her Majesty’s Revenue and Customs may delegate the Schedule 11 powers only to named officers who satisfy two tests: first, that they are considered to have the appropriate seniority and skills; and, secondly, that their functions include the investigation and prosecution of serious crime.

I said that this was a probing amendment. I do not think that it is quite right because, having looked again at Schedule 11, I see that some of the powers are granted directly to HMRC officers and not by way of delegation from the commissioners. The Minister will see, however, that my amendment probes the kind of HMRC officer who will in practice exercise the powers.



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The Law Society has said that it is concerned that any use of the new powers should be authorised at an appropriately senior level. In the case of the police, the senior authorising officers are chief constables or the commissioners for the City and Metropolitan police forces. The Law Society believes that the Act should make clear the level of authority required for use of the powers. As I read the Bill, it is silent on that.

As we know, the powers in Schedule 11 are extensive. I hope that the Minister will agree that junior officers should not be entrusted with them. My noble friend Lord Crickhowell referred to the evidence given to the Treasury Select Committee in another place in January, when the astonishing fact was revealed that there were some 20,000 officers, presumably including some junior ones, but that that figure was to be whittled down to a smaller number. I hope that the Minister will place on record exactly what those plans entail and when they will be implemented. Will they ensure that the powers will be available only to officers who have the “appropriate seniority and skills”?

The second leg of my amendment focuses on the functions of the people who will operate the powers. The Chartered Institute of Taxation is concerned that the new powers, which may be appropriate and proportionate for the investigation of serious crime, may be inappropriate and disproportionate for the administration of the tax system and the protection of revenue. I understand that HMRC intends to separate its criminal and civil activities—if I may use that shorthand—and that the powers will be used only for the pursuit of crime and not by officers who are not concerned in that work. Will HMRC’s plans equate to the wording in my amendment and confine the powers to officers whose,

In respect of both aspects of my amendment—confining the powers to those whose functions include investigation, and the appropriate level of seniority of officer—will HMRC’s arrangements be in place when Schedule 11 is brought into effect? It is important that people understand that robust arrangements will be in place when the powers are implemented. Indeed, is there any reason why these requirements should not be in the Bill to ensure that HMRC could never use the powers other than in accordance with this provision?

As I mentioned, the Chartered Institute of Taxation is genuinely concerned about a possible reduction in the right to privacy if information gleaned by HMRC officers dealing with the criminal side were to be shared with the civil tax administration side. It believes that there should be an absolute rule that someone who is involved in the criminal aspect should never be involved in the civil aspect. Going that far would never be realistic, but can the Minister describe the extent to which different activities within HMRC would be Chinese-walled? This matter strikes at the heart of the confidentiality between HMRC and taxpayers, and the civil nature of that relationship. Some clarification would be helpful. I beg to move.



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Lord Burnett: I hope that the noble Baroness, Lady Noakes, will not mind if I speak for her. I have not had the advantage of a brief, either from the Law Society or the Chartered Institute of Taxation, although in the other place I received many briefs from them on countless Finance Bills. These powers are far-reaching and require to be exercised by individuals who are experienced and intelligent. The work is sensitive and complex and, if there is to be a delegation of functions, the Committee would wish to ensure that those to whom the functions are delegated are properly trained and are the appropriate people to carry them out. Perhaps the Minister can say which individuals will carry out this work and what qualifications they will have.

Baroness Scotland of Asthal: I understand the nature of the noble Baroness’s amendment and I shall try to concentrate not on its form, but on its intent.

Amendment No. 124 seeks to ensure that the Commissioners of Her Majesty’s Revenue and Customs may delegate the powers in Schedule 11 only to named officers with appropriate seniority and skills and whose functions include the investigation and prosecution of serious crime. I should make it clear to the noble Baroness that no officer of Revenue and Customs is responsible for prosecutions, as that is now the responsibility of independent prosecutors such as the Revenue and Customs Prosecutions Office. So we have that distinction and specialisation. Otherwise, the amendment could lead to confusion and prevent HMRC from using the powers at all for any matter, including where those powers are currently available for use by the department. This includes combating serious smuggling and tax crimes such as carousel fraud, about which the noble Baroness knows well.

In addition to that technical matter, applications to use these powers, as the noble Baroness is aware, are already subject to rigorous internal controls and authorisation procedures and, under administrative law, the commissioners can delegate their powers only to suitable officers. The powers in question are available for HMRC to use only to prevent or detect serious crime. Only five senior civil servants in HMRC’s criminal investigation section can authorise applications to use them. Each of those five officers has extensive experience of criminal investigations and the use of these powers.

For example, any possible application to a surveillance commissioner for approval to use intrusive surveillance must first be considered and approved by one of those five officers. Those authorising officers and the officers whose applications they consider are responsible only for criminal investigations and do not undertake other work, such as civil inquiries into tax matters. The noble Baroness asked how the Chinese wall works. That is how it works—and to some good effect.

Before approving an application, the authorising officer must be satisfied that human rights have been fully considered and that the action proposed is proportionate and necessary to tackle serious crime. Only after those stringent procedures have been

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followed can an application be made to an independent surveillance commissioner, who then considers the application.

I hope that I have explained how these issues will be dealt with. I know that the noble Baroness said that 20,000 people had the power of arrest and asked how that would be reduced. We hope that there will be an opportunity to look at that matter and to implement appropriate measures in the Finance Bill 2007. Powers will be available only to authorised officers who have appropriate skills and seniority. That is the result of the review that has given rise to these other proposals.

We do not believe that there will be the confusion that the noble Baroness and the noble Lord, Lord Burnett, were concerned about in terms of keeping the civil and the criminal issues appropriately separate. The law ensures that the majority of these powers can be used only to tackle serious crime, and HMRC’s stringent internal processes and controls will ensure that officers could not apply to use them in civil matters. Therefore, the system should work well. We have been very careful to replicate the existing stringent safeguards to address the mischief that the noble Baroness feared regarding the manner in which the powers might be used.

Baroness Noakes: I am grateful to the Minister for that reply and I apologise for including in my amendment prosecution, which I know full well was separated out by the Commissioners for Revenue and Customs Act 2005. She said that five officers would carry out authorisations, but clearly a larger number of officers will be involved in using the controls. I was trying to find out whether, when the new powers come in, they will be used in more situations than are the existing provisions, which cover only matters in relation to the former Customs and Excise. Will the new provisions allow only senior people to authorise and use the powers?

A feeling of transition emerged from the evidence to the Treasury Select Committee in another place. At the moment, lots of people—presumably only those in the old Customs and Excise part of HMRC—have access to powers, and we are now reducing that number while increasing the scope. That would make it possible for inappropriate persons to use the powers, unless there was a clear transitional plan. Can the Minister say any more on that?

Baroness Scotland of Asthal: I can certainly assist in relation to how the system works at present. I suppose that the noble Baroness is asking how we operate the RIPA issues. The use of these powers is also subject to the rigorous internal tasking and co-ordination mechanisms that currently exist. Under Part 1 of RIPA, for example, the case being considered is placed before a committee of HMRC senior directors, who consider whether there is justification for the use of covert support. Regarding RIPA Parts 2 and 3, police applications are routed through internal line management and the covert assurance bureau.



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